Measures introduced by incoming chief executive Leung Chun-ying have led to a sharp rise in resale prices of Home Ownership Scheme (HOS) flats as well as small flats in the private market.

On July 16 the new chief executive announced that from next year 5,000 'white-form' applicants for HOS flats - prospective buyers of a subsidised unit presently living in a private flat and who did not receive a housing subsidy - would be able to buy second-hand HOS flats without paying a land premium.

Until the policy change only 'green form' applicants - living in public housing and eligible for it - were able to buy such subsidised homes without paying the premium.

"That's why transactions of HOS flats were inactive and property prices were low," Wong Leung-sing, an associate director of research at Centaline Property Agency, said.

But the new policy has opened up competition for HOS flats.

"Because green-form applicants face competition from white-form applicants from next year, they advanced their buying plans," Wong said. "But since there was no increase in supply, this led to prices of HOS flats rising significantly."

As a result of the new policy, prices of second-hand HOS flats jumped as much as 10 per cent, according to Kim Chan Shek-kam, sales manager at Fullmark Property Agency.

"Many flat owners would like to see the impact on the market when the policy takes effect next year and have decided to keep their flats temporarily," Chan said. "This has reduced the number of flats available for sale and 'green form' home seekers have to offer a higher prices to persuade owners to sell now."

Since the policy change, prices in the secondary market for HOS flats have hit record levels. An 853 sq ft flat at Tin Shing Court in Tin Shui Wai was this month sold to a green-form applicant for HK$2.28 million, or HK$2,673 per square foot. Property agents said this was a record price for the housing estate.

The policy change has also led to a sharp rise in prices of small flats in private housing estates. According to Fullmark Property Agency, a 289 sqft flat in the 34-year-old Fu Yau Building in Wong Tai Sin sold for HK$2.16 million, or HK$7,474 per square foot, this month.

Only a month ago similar flats were sold for between HK$1.7 million and HK$1.8 million, Chan said.

Demand for small flats would continue to rise, Sammy Po, a director at Midland Realty, said.

"The policy is expected to bring new demand to the private housing market, as some HOS flat owners may buy private housing flats after they sell their flats," he said.

Justin Chiu Kwok-hung, executive director of developer Cheung Kong, cautioned last month that the sudden rise in value of HOS flats was based on hopeful expectations that may be disappointed.

If prices rose at all, they would probably do so by less than those of flats in the private sector, he said.

This article appeared in the South China Morning Post print edition as Change in HOS eligibility brings surge in prices